Sunday, October 21, 2012

Big Article on Haynesville Shale in NY Times

Today's New York Times Sunday Business section featured a front page feature article on the Haynesville Shale.  It looked back on the beginning of the play and shed some light on how the investment bankers for the producers raised the tens of billions of dollars from investors all over the world to fuel the massive leasing and subsequent drilling efforts that ultimately created a glut of natural gas that decimated the price of natural gas.  The article has a particular focus on Chesapeake Energy and its main banker Ralph Eads, III of Jefferies & Company.  It's a long article but well worth the time.

I saw someone online characterize this article as "fracking bust coming."  I disagree. It's certainly a cautionary tale on what happens when you have a market transformation come too quickly (and during the biggest recession of most of our lives).  But the story behind the Haynesville Shale is not greed or hypocritical salesmanship but what happens when you set in motion a chain of events that you can't control.  Sure, the money was big and plenty.  Sure, the wells were fat and easy.  A rational player would have stopped drilling as soon as gas prices dipped below a certain threshold.  But the deals in place - the leases with land owners and the financial and operational deals that funded the drilling - required that the producers keep producing, even when it made no rational economic sense.

Hey, can I coin the phrase "Haynesville Paradox?"  What does it take?  Is there a national/international review board?  I'll look into it.

Oh, and does that rig count graphic below look familiar???

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